The Role of the Goverment’s Internal Control System as An Intervening Variable on the Influence of Non-Compliance with The Quality of Local Government Financial Statements In Indonesia
The 2nd International Conference on Technology, Education, and Social Science 2018 (The 2 nd ICTESS 2018)
The Role of the Goverment’s Internal Control System as An
Intervening Variable on the Influence of Non-Compliance with The
Quality of Local Government Financial Statements In Indonesia
Nur Hidayati a), Aris Eddy Sarwono a), Sunarti b), Dewi Saptantinah P Ab)
a
b
Abstrak :
Faculty of economic of Slamet Riyadi University Surakarta
Faculty of economic of Slamet Riyadi University Surakarta
Corresponding e-mail: Nufhanur@gmail.com
This study aims to examine the influence of the goverment’s internal control
system and non-compliance with regulations on the quality of local goverment
financial statements. Local goverments financial reports have a function as a form
of accountability from the goverment to the public. This study uses Secondary data
with local goverments financial statements as Indonesia amounted to 259 from
2010 to 2014 using eviews9 test tool. The result showed that the goverments
internal control system and regulatory non-compliance have a significant effect on
the quality of local goverment financial statements with the results on internal
goverment control system variables of -0.932243 and the variable non-compliance
regulation amounted to 0.830193 which means both variables above the significant
value 0,05. On the internal goverment control system variables and regulatory noncompliance affecting 0,203449 which means 0,796 influenced by other variables.
Keywords : quality of financial statements, goverment internal control system, non-compliance
regulation
1.
RESEARCH BACKGROUND
The demand to have good
governance must be responded by the
government with the increasing
changes. These changes will lead to
implementation of good government
governance. The challenge to achieve
this is difficult because of the public
services done by the government are
riddled with many unhealthy activities.
These activities will lead to corruption,
collusion and nepotism practice which
mark Indonesia as one of most corrupt
country. This statement is based on the
Transparency Indonesia (TI) survey
done from 2006 until 2010. The good
government governance is the society’s
demand and must be done the
government (central and local) as public
accountability. Accountability can be
defined as the possibility of success and
failure during the organization’s
366
accomplishment to achieve objectives
and targets previously determined
periodically (Mardiasmo, 2002). As one
of responsibility in implementation
governance, arranged in Law No. 17 of
2003 about the financial state and Law
No. 32 of 2004 about local government,
the concrete attempt to show
transparency and accountability in
management of financial government
(central and local), is in form of
financial report.
SPIP is the government internal
control done in all central and local
government to create reliability of
financial report, increase efficiency and
effectively in government, secure the
state’s assets and comply with the law.
SPIP can be used as early indicators to
assess the organization’s performance
and a way to direct, supervise and
measure the assets of an organization.
Moreover, SPIP has an important role
of preventing and detecting fraud early,
also guiding entity properly. One of
management’s general purposes in
creating effective internal control
system is to make sure the reliability of
financial reporting (Arens, 2008:370).
According
to
Government
Regulation (Peraturan Pemerintah or
PP) No. 60 of 2008, intern control
system good governance includes many
policies such as (1) related to financial
recording, (2) give assurance that the
financial report has been drafted based
on
the
government’s
standard
accounting, income and expenses in
accordance with authorization and (3)
give assurance regarding assets’
security that affected materially in the
government financial report. The
development of Government Internal
Control System (SPIP) covers (a) the
technical composing of SPIP, (b)
socializing SPIP, (c) educating and
training SPIP, (d) guiding and
consulting SPIP and (e) increasing the
auditor’s competency of government
internal supervision. In addition, the
training is done by BPKP.
Choi (2011) states that accounting
system, funding sources, tax, politic and
economic
relationship,
economic
development level, education level and
culture are eight elements which can
influence accounting. Moreover, Choi
(2011) says that law and development
of accounting are also able to influence
the examination result of the local
government’s financial report showing
noncompliance regulation to the Law
that caused the local’s loss, potency of
local’s
loss,
loss
income,
administration,
non-economics,
inefficiency, and ineffectively. Standard
of State Financial Examination (BPK
2007) mentions that compliance with
the last component regulation to assess
the
LKPD’s
accountability
is
compliance to the law. Examination
result of financial report shows
noncompliance regulation caused the
local’s loss, potency of local’s loss, loss
income, administration, non-economics,
inefficiency, and ineffectively. The
personnel’s performance assessment is
not based on performance only
compliance (Tobirin :2008). The more
findings of noncompliance regulation
indicate the government’s performance
and accountability are less than
desirable. The dissatisfactory local
government will cause the local’s loss.
BPK RI opinion of local
government financial report during
2011-2012 shows local government
financial report percentage that assessed
as Normal Without Exception (WTD)
increased 23% from 10% in 2012 (from
13%). The percentage of Normal With
Exception (WTP) local government
financial report is decreased 62% in
2013 from 67% in 2012 with 5%
difference, Abnormal Opinion (TW) in
2012 is the same percentage 1% and
Not Giving Opinion (TMP) in 2012 is
14% decreasing 5% from 2011 which is
19% (IHPS I BPK RI year 2013).
Summary of Semester Examination
Result (IHPS) I BPK in 2013 shows
there are 5.307 cases of Internal Control
System (SPI) weaknesses. These cases
are categorized based on findings in
three
categories,
weakness
of
accounting
control
system
and
reporting, weakness of implementation
budget control and weakness of internal
control
structure.
Weakness
of
accounting control system and reporting
cases are 1.918 (38% from SPI
weakness), weakness of implementation
budget control cases are 2.257 (43%
from total SPI weakness), and weakness
of internal control structure cases are
1.132 (21% from total SPI weakness).
BPK recommendations of the cases are
administration penalty and/or SPI
improvement. Findings of the loss
367
because of noncompliance regulation
are 7.282 cases worth Rp7.826.780,01
million. Findings of noncompliance
caused the central or local loss, potency
of central or local loss and loss income
are 4.117 cases (56% from total
noncompliance regulation cases) worth
Rp6.666.051,68 million.
The aims of this research are to find
SPIP influence to quality of local
government
financial
report,
noncompliance regulation influence to
quality of local government financial
report, government internal control
system and noncompliance regulation
influence to quality of local government
financial report.
Based on the research background
previously explained, the researcher
interested to do research about this
topic. This research is a development
from some previous research that are
Teuku, et al.(2015), Desi, et al.(2014)
dan Komang, et al.(2014). The
researcher wishes this research can give
more advice to the central or local
government and as a way to increase the
quality of local government financial
report in the future. In addition, the
researcher wishes for herself and the
reader to gain more knowledge about
variable studies, theoretically and
practically, in this research.
2.
3.
RESEARCH LIMITATION
This research is limited to the
variables related to noncompliance
regulation, government internal control
system, and quality of local government
financial report or LKPD. The research
is measured by LKPD data from 20102014 in Indonesia.
4.
RESEARCH OBJECTIVE
a.
b.
c.
d.
RESEARCH STATEMENTS
a.
b.
c.
368
quality of local government
financial report?
Is noncompliance regulation
influence the local government
financial report?
Is the government internal
control system influence the
quality of local government
financial report?
Is there any indirect influence
between
noncompliance
regulation and government
internal control system to the
5.
To find and examine the
relationship of noncompliance
regulation’s influence to local
government financial report.
To find and examine the
relationship
between
government internal control
system’s influence and the
quality of local government
financial report.
To find and examine the
indirect
relationship
of
noncompliance regulation and
government internal control
system to the quality of local
government financial report.
To find and examine the
indirect influence between the
quality of local government
financial
report
to
noncompliance regulation and
government internal control
system.
THEORETICAL APPROACH
a.
Noncompliance Regulation
Noncompliance
regulation
related to accounting policies
accumulated in determining the
normality in financial report
(Hendarto:
2006).
Financial
examination is done by BPK RI
based on the regulation identifies
some findings. The findings are
categorized
on
revealing
noncompliance regulation that
caused the state’s loss, potency of
the state’s loss, loss income,
administration
storage,
noneconomic, ineffectively and
inefficiency in Summary of
Examination Result in every
semester.
Government Internal Control
System
Government Regulation (PP)
No. 60 of 2008 defines internal
control system as an integral
process of actions and activities
done by the leader and the
employees continually to give
assurance for achieving the
organization’s objectives by means
of effective and efficient activities,
reliability in financial recording,
securing the state’s assets and
compliance to regulation. The
objectives of Government Internal
Control System are:
1) Give assurance to achieve
effectively and efficiency
toward
governance
government’s objective
2) Reliable
financial
recording
3) Security of the state’s asset
4) Compliance to regulation
events and it is not mandatory to
provide non-financial information.
According to Mulyana (2010: 96),
quality is defined as compatibility
with standards, measured with
incompatibility and achieved by
examination.
Additionally,
Mahmudi (2003:17) explains that
financial public report is a form of
the government’s responsibility to
its citizen about financial public
management from tax, retribution,
or
other
transactions.
The
presentation of general purposes
financial statements aim to increase
comparison between financial
report and budget, inter period or
inter entity. Components included
in
financial
report
are
Implementation Budget Report,
Balance, Cash Flow Report, and
Note of Financial Statement. Based
on the Regulation of Minister of
Home Affairs or Permendagri No.
13/2006,
there
are
four
characteristics
of
normative
prerequisite needed to fulfill good
quality of financial report which are
relevant, reliable, comparable and
understandable.
b.
c.
Quality of Local Government
Financial Report
Quality assessment of financial
report can be seen from the
presented report. The information
in the financial report can be
understood and fulfilled the user’s
necessity for making decision, error
materials and reliable. Therefore,
the financial report can be
compared with the previous period.
Generally, the financial report
reflects influence from the past
6.
HYPOTHESIS
FORMULATION
Noncompliance Regulation
Findings about loss of local assets
such as money, marketable securities,
and goods which are real and have exact
number as a cause of noncompliance
regulation activities, intentionally or
unintentionally (BPK RI 2010).
Noncompliance regulation caused the
central or local loss is measured by the
worth of the local loss (Atmaja and
Probohudono,
2015).
Compliance
regulation is one of questionable factor
in publishing public financial report.
Compliance regulation is reflected from
369
illegal activities or findings of
noncompliance
regulation.
Noncompliance regulation can cause
miss presentation materials from
information in financial record or other
financial data significantly related to
examination’s objective (BPK RI
Regulation No. 1 of 2007). Thus, BPK
RI in examination does inspection to
local government entity to the Law,
fraud and unworthiness that influence
directly and material to presentation of
financial report. If the unworthiness
found from inspection, the inspector
will publish the inspection result of the
financial report with the paragraph
referred as compliance to government
regulation.
H1 : noncompliance regulation
influenced significantly to the local
government financial report.
Government
Internal
Control
System In Government Regulation
No 8 of 2006, Government Internal
Control System (SPI) is a process
influenced by management, created
to give assurance to achieve
effectively, efficiency, compliance
to
regulation,
reliability
in
presenting
local
government
financial report. In Law No. 60 of
2008, Government Internal Control
System (SPIP) is an integral system
held in central and local
government.
H2 : Government Internal Control
System influenced significantly to
LKPD
Indirect
Influence
between
Noncompliance
Regulation,
Government
Internal
Control
System and Quality of Financial
Report Noncompliance regulation
is one of factor makes the quality of
financial report is less than
desirable. The application of
compliance regulation is a process
with symbolic interaction between
370
the controller and the controlled
(Sawabe, 2002). This approach is
done by regulation draft of
application independent strategy
and referred with legal aspect above
it which can fulfill the objective of
the regulation (Colin, 2003). This
re-regulatory makes the reregulatory
approach
through
controlling institution strategy as
phase of making its own decision
that can fulfill compatibility the
objective of the regulation (Syiful
Hifni:2014).
H3 : noncompliance regulation
indirectly influences the financial
report.
7.
RESEARCH METHOD
The data used in this research are
the secondary data which is the result of
examination (IHP) BPK from 2013 to
2014. The population in this research is
all local government in Indonesia
totaled 524. The collecting sample
technique used is Probability Sampling
or Random Sampling. This technique
gives same probability taken from each
elements of population (Sugiyono,
2014). The data collecting technique
used for this research are downloading
directly from BPK official website
www.bpk.go.id and asking directly by
email to Public Relation Department of
BPK. The analysis tool for the data is
eview9.
8.
ANALYSIS AND DISCUSSION
a.
Model Trial
There are three phase of this
trial, Chow trial, Hausman trial and
Lagrange Multiplayer trial. Based
on both trials, the model used in
this research is fixed effect since
the probability value 0,0000
The Role of the Goverment’s Internal Control System as An
Intervening Variable on the Influence of Non-Compliance with The
Quality of Local Government Financial Statements In Indonesia
Nur Hidayati a), Aris Eddy Sarwono a), Sunarti b), Dewi Saptantinah P Ab)
a
b
Abstrak :
Faculty of economic of Slamet Riyadi University Surakarta
Faculty of economic of Slamet Riyadi University Surakarta
Corresponding e-mail: Nufhanur@gmail.com
This study aims to examine the influence of the goverment’s internal control
system and non-compliance with regulations on the quality of local goverment
financial statements. Local goverments financial reports have a function as a form
of accountability from the goverment to the public. This study uses Secondary data
with local goverments financial statements as Indonesia amounted to 259 from
2010 to 2014 using eviews9 test tool. The result showed that the goverments
internal control system and regulatory non-compliance have a significant effect on
the quality of local goverment financial statements with the results on internal
goverment control system variables of -0.932243 and the variable non-compliance
regulation amounted to 0.830193 which means both variables above the significant
value 0,05. On the internal goverment control system variables and regulatory noncompliance affecting 0,203449 which means 0,796 influenced by other variables.
Keywords : quality of financial statements, goverment internal control system, non-compliance
regulation
1.
RESEARCH BACKGROUND
The demand to have good
governance must be responded by the
government with the increasing
changes. These changes will lead to
implementation of good government
governance. The challenge to achieve
this is difficult because of the public
services done by the government are
riddled with many unhealthy activities.
These activities will lead to corruption,
collusion and nepotism practice which
mark Indonesia as one of most corrupt
country. This statement is based on the
Transparency Indonesia (TI) survey
done from 2006 until 2010. The good
government governance is the society’s
demand and must be done the
government (central and local) as public
accountability. Accountability can be
defined as the possibility of success and
failure during the organization’s
366
accomplishment to achieve objectives
and targets previously determined
periodically (Mardiasmo, 2002). As one
of responsibility in implementation
governance, arranged in Law No. 17 of
2003 about the financial state and Law
No. 32 of 2004 about local government,
the concrete attempt to show
transparency and accountability in
management of financial government
(central and local), is in form of
financial report.
SPIP is the government internal
control done in all central and local
government to create reliability of
financial report, increase efficiency and
effectively in government, secure the
state’s assets and comply with the law.
SPIP can be used as early indicators to
assess the organization’s performance
and a way to direct, supervise and
measure the assets of an organization.
Moreover, SPIP has an important role
of preventing and detecting fraud early,
also guiding entity properly. One of
management’s general purposes in
creating effective internal control
system is to make sure the reliability of
financial reporting (Arens, 2008:370).
According
to
Government
Regulation (Peraturan Pemerintah or
PP) No. 60 of 2008, intern control
system good governance includes many
policies such as (1) related to financial
recording, (2) give assurance that the
financial report has been drafted based
on
the
government’s
standard
accounting, income and expenses in
accordance with authorization and (3)
give assurance regarding assets’
security that affected materially in the
government financial report. The
development of Government Internal
Control System (SPIP) covers (a) the
technical composing of SPIP, (b)
socializing SPIP, (c) educating and
training SPIP, (d) guiding and
consulting SPIP and (e) increasing the
auditor’s competency of government
internal supervision. In addition, the
training is done by BPKP.
Choi (2011) states that accounting
system, funding sources, tax, politic and
economic
relationship,
economic
development level, education level and
culture are eight elements which can
influence accounting. Moreover, Choi
(2011) says that law and development
of accounting are also able to influence
the examination result of the local
government’s financial report showing
noncompliance regulation to the Law
that caused the local’s loss, potency of
local’s
loss,
loss
income,
administration,
non-economics,
inefficiency, and ineffectively. Standard
of State Financial Examination (BPK
2007) mentions that compliance with
the last component regulation to assess
the
LKPD’s
accountability
is
compliance to the law. Examination
result of financial report shows
noncompliance regulation caused the
local’s loss, potency of local’s loss, loss
income, administration, non-economics,
inefficiency, and ineffectively. The
personnel’s performance assessment is
not based on performance only
compliance (Tobirin :2008). The more
findings of noncompliance regulation
indicate the government’s performance
and accountability are less than
desirable. The dissatisfactory local
government will cause the local’s loss.
BPK RI opinion of local
government financial report during
2011-2012 shows local government
financial report percentage that assessed
as Normal Without Exception (WTD)
increased 23% from 10% in 2012 (from
13%). The percentage of Normal With
Exception (WTP) local government
financial report is decreased 62% in
2013 from 67% in 2012 with 5%
difference, Abnormal Opinion (TW) in
2012 is the same percentage 1% and
Not Giving Opinion (TMP) in 2012 is
14% decreasing 5% from 2011 which is
19% (IHPS I BPK RI year 2013).
Summary of Semester Examination
Result (IHPS) I BPK in 2013 shows
there are 5.307 cases of Internal Control
System (SPI) weaknesses. These cases
are categorized based on findings in
three
categories,
weakness
of
accounting
control
system
and
reporting, weakness of implementation
budget control and weakness of internal
control
structure.
Weakness
of
accounting control system and reporting
cases are 1.918 (38% from SPI
weakness), weakness of implementation
budget control cases are 2.257 (43%
from total SPI weakness), and weakness
of internal control structure cases are
1.132 (21% from total SPI weakness).
BPK recommendations of the cases are
administration penalty and/or SPI
improvement. Findings of the loss
367
because of noncompliance regulation
are 7.282 cases worth Rp7.826.780,01
million. Findings of noncompliance
caused the central or local loss, potency
of central or local loss and loss income
are 4.117 cases (56% from total
noncompliance regulation cases) worth
Rp6.666.051,68 million.
The aims of this research are to find
SPIP influence to quality of local
government
financial
report,
noncompliance regulation influence to
quality of local government financial
report, government internal control
system and noncompliance regulation
influence to quality of local government
financial report.
Based on the research background
previously explained, the researcher
interested to do research about this
topic. This research is a development
from some previous research that are
Teuku, et al.(2015), Desi, et al.(2014)
dan Komang, et al.(2014). The
researcher wishes this research can give
more advice to the central or local
government and as a way to increase the
quality of local government financial
report in the future. In addition, the
researcher wishes for herself and the
reader to gain more knowledge about
variable studies, theoretically and
practically, in this research.
2.
3.
RESEARCH LIMITATION
This research is limited to the
variables related to noncompliance
regulation, government internal control
system, and quality of local government
financial report or LKPD. The research
is measured by LKPD data from 20102014 in Indonesia.
4.
RESEARCH OBJECTIVE
a.
b.
c.
d.
RESEARCH STATEMENTS
a.
b.
c.
368
quality of local government
financial report?
Is noncompliance regulation
influence the local government
financial report?
Is the government internal
control system influence the
quality of local government
financial report?
Is there any indirect influence
between
noncompliance
regulation and government
internal control system to the
5.
To find and examine the
relationship of noncompliance
regulation’s influence to local
government financial report.
To find and examine the
relationship
between
government internal control
system’s influence and the
quality of local government
financial report.
To find and examine the
indirect
relationship
of
noncompliance regulation and
government internal control
system to the quality of local
government financial report.
To find and examine the
indirect influence between the
quality of local government
financial
report
to
noncompliance regulation and
government internal control
system.
THEORETICAL APPROACH
a.
Noncompliance Regulation
Noncompliance
regulation
related to accounting policies
accumulated in determining the
normality in financial report
(Hendarto:
2006).
Financial
examination is done by BPK RI
based on the regulation identifies
some findings. The findings are
categorized
on
revealing
noncompliance regulation that
caused the state’s loss, potency of
the state’s loss, loss income,
administration
storage,
noneconomic, ineffectively and
inefficiency in Summary of
Examination Result in every
semester.
Government Internal Control
System
Government Regulation (PP)
No. 60 of 2008 defines internal
control system as an integral
process of actions and activities
done by the leader and the
employees continually to give
assurance for achieving the
organization’s objectives by means
of effective and efficient activities,
reliability in financial recording,
securing the state’s assets and
compliance to regulation. The
objectives of Government Internal
Control System are:
1) Give assurance to achieve
effectively and efficiency
toward
governance
government’s objective
2) Reliable
financial
recording
3) Security of the state’s asset
4) Compliance to regulation
events and it is not mandatory to
provide non-financial information.
According to Mulyana (2010: 96),
quality is defined as compatibility
with standards, measured with
incompatibility and achieved by
examination.
Additionally,
Mahmudi (2003:17) explains that
financial public report is a form of
the government’s responsibility to
its citizen about financial public
management from tax, retribution,
or
other
transactions.
The
presentation of general purposes
financial statements aim to increase
comparison between financial
report and budget, inter period or
inter entity. Components included
in
financial
report
are
Implementation Budget Report,
Balance, Cash Flow Report, and
Note of Financial Statement. Based
on the Regulation of Minister of
Home Affairs or Permendagri No.
13/2006,
there
are
four
characteristics
of
normative
prerequisite needed to fulfill good
quality of financial report which are
relevant, reliable, comparable and
understandable.
b.
c.
Quality of Local Government
Financial Report
Quality assessment of financial
report can be seen from the
presented report. The information
in the financial report can be
understood and fulfilled the user’s
necessity for making decision, error
materials and reliable. Therefore,
the financial report can be
compared with the previous period.
Generally, the financial report
reflects influence from the past
6.
HYPOTHESIS
FORMULATION
Noncompliance Regulation
Findings about loss of local assets
such as money, marketable securities,
and goods which are real and have exact
number as a cause of noncompliance
regulation activities, intentionally or
unintentionally (BPK RI 2010).
Noncompliance regulation caused the
central or local loss is measured by the
worth of the local loss (Atmaja and
Probohudono,
2015).
Compliance
regulation is one of questionable factor
in publishing public financial report.
Compliance regulation is reflected from
369
illegal activities or findings of
noncompliance
regulation.
Noncompliance regulation can cause
miss presentation materials from
information in financial record or other
financial data significantly related to
examination’s objective (BPK RI
Regulation No. 1 of 2007). Thus, BPK
RI in examination does inspection to
local government entity to the Law,
fraud and unworthiness that influence
directly and material to presentation of
financial report. If the unworthiness
found from inspection, the inspector
will publish the inspection result of the
financial report with the paragraph
referred as compliance to government
regulation.
H1 : noncompliance regulation
influenced significantly to the local
government financial report.
Government
Internal
Control
System In Government Regulation
No 8 of 2006, Government Internal
Control System (SPI) is a process
influenced by management, created
to give assurance to achieve
effectively, efficiency, compliance
to
regulation,
reliability
in
presenting
local
government
financial report. In Law No. 60 of
2008, Government Internal Control
System (SPIP) is an integral system
held in central and local
government.
H2 : Government Internal Control
System influenced significantly to
LKPD
Indirect
Influence
between
Noncompliance
Regulation,
Government
Internal
Control
System and Quality of Financial
Report Noncompliance regulation
is one of factor makes the quality of
financial report is less than
desirable. The application of
compliance regulation is a process
with symbolic interaction between
370
the controller and the controlled
(Sawabe, 2002). This approach is
done by regulation draft of
application independent strategy
and referred with legal aspect above
it which can fulfill the objective of
the regulation (Colin, 2003). This
re-regulatory makes the reregulatory
approach
through
controlling institution strategy as
phase of making its own decision
that can fulfill compatibility the
objective of the regulation (Syiful
Hifni:2014).
H3 : noncompliance regulation
indirectly influences the financial
report.
7.
RESEARCH METHOD
The data used in this research are
the secondary data which is the result of
examination (IHP) BPK from 2013 to
2014. The population in this research is
all local government in Indonesia
totaled 524. The collecting sample
technique used is Probability Sampling
or Random Sampling. This technique
gives same probability taken from each
elements of population (Sugiyono,
2014). The data collecting technique
used for this research are downloading
directly from BPK official website
www.bpk.go.id and asking directly by
email to Public Relation Department of
BPK. The analysis tool for the data is
eview9.
8.
ANALYSIS AND DISCUSSION
a.
Model Trial
There are three phase of this
trial, Chow trial, Hausman trial and
Lagrange Multiplayer trial. Based
on both trials, the model used in
this research is fixed effect since
the probability value 0,0000